Pneumolysin plays a significant role in pneumococcal pathogenicity. It can disrupt eukaryotic cell function by generating pores in the membrane which results in cell lysis. We have constructed deletion mutations in the pneumolysin gene cloned in E. coli and demonstrated that the mammalian cell receptor-binding domain of pneumolysin is located in the carboxyl end of the protein. By chemical mutagenesis, we have also isolated mutants that produce either no or high hemolytic activity. The locations of mutations in nonhemolytic and hyperactive pneumolysin were determined by nucleotide sequence analysis. An extract from the E. coli with a nonhemolytic mutant pneumolysin gene exhibited an inhibitory effect on the hemolytic activity of wild-type pneumolysin whereas E. coli controls did not. This suggests that this nonhemolytic pneumolysin may still carry the receptor-binding domain and it may be defective in pore formation. Cholesterol has been suggested as a binding site of pneumolysin. It can inhibit the activity of wild-type and hyperactive pneumolysin. However, the amount of cholesterol needed to inhibit the hyperactive mutant was 50-fold less than the wild-type strain. This suggests that the hyperactive pneumolysin may have greater affinity for the cholesterol containing membrane receptor.